Weather Threats and Supply Dynamics Push Coffee Prices to 1.5-Week Peaks

Coffee futures marked a solid finish on Monday, with March arabica contracts gaining +1.90 points (+0.54%) and March robusta closing +26 points (+0.67%). The upward momentum reflects mounting concerns across major production regions that could reshape the coffee crop outlook for the coming season.

Brazil’s Drought Pressures Arabica Growth

Brazil’s arabica-growing heartland has become the focus of trader attention due to insufficient precipitation. Minas Gerais, responsible for a significant share of global arabica supply, registered just 11.1 mm of rainfall in the week ended December 26—only 17% of the historical norm. This moisture deficit poses risks to the developing coffee crop and has supported prices as buyers reassess supply availability.

Brazil’s official crop forecasting agency Conab earlier raised its 2025 production estimate to 56.54 million bags, up 2.4% from September projections. However, the USDA’s Foreign Agriculture Service projects a -3.1% y/y decline to 63 million bags for 2025/26, suggesting production challenges may persist despite the agency’s optimism.

Indonesia Faces Flooding Disruption to Coffee Production

Beyond rainfall deficits, Indonesia confronts the opposite problem—excessive flooding in key growing regions. Approximately one-third of the country’s arabica coffee farms in northern Sumatra have been affected in recent weeks, threatening to reduce exports by up to 15% in the 2025-26 season, according to industry associations. While robusta crops have weathered the conditions better, Indonesia’s role as the world’s third-largest robusta producer means any disruption carries global implications for the coffee crop supply chain.

Vietnam’s Robust Output Adding Supply Pressure

Vietnam’s coffee production tells a different story. The country exported 88,000 MT in November alone—a +39% y/y jump—with Jan-Nov shipments reaching 1.398 MMT, up 14.8% from last year. Vietnam’s 2025/26 coffee output is projected at 1.76 MMT (29.4 million bags), a 4-year high and 6% above prior-year levels, positioning the country to maintain its status as the world’s largest robusta producer.

This supply abundance is tempering upside pressure on prices, particularly for the robusta contract, which faces headwinds from Vietnam’s expanding harvest potential.

Inventory Dynamics Offer Mixed Signals

ICE arabica stocks fell to a 1.75-year low of 398,645 bags on November 20 before recovering to 456,477 bags last Wednesday. Robusta inventories hit a 1-year low of 4,012 lots on December 10, bouncing to 4,278 lots by mid-week. These tighter-than-recent inventory levels have provided support to both contracts, offsetting some of the bearish signals from ample near-term production forecasts.

Trade Policy Easing Reshapes Demand Patterns

US tariff reductions on Brazilian imports are beginning to reshape purchasing patterns. American coffee buyers sharply curtailed Brazilian purchases during the tariff period—August through October purchases dropped 52% y/y to 983,970 bags. With tariffs now reduced, US demand may gradually recover, though domestic inventories remain constrained, limiting immediate import acceleration.

Global Supply Picture Remains Uncertain

The International Coffee Organization reported that global exports for Oct-Sep declined -0.3% y/y to 138.658 million bags, suggesting tighter near-term availability. However, the USDA projects global 2025/26 production climbing +2.0% y/y to a record 178.848 million bags. Arabica output is expected to dip -4.7% to 95.515 million bags, while robusta surges +10.9% to 83.333 million bags, painting a bifurcated supply picture that keeps traders balancing multiple risk factors affecting the coffee crop outlook and pricing.